No Pot O' Gold Seen on Wall Street
Mar 11 12:41pm ET
By Haitham Haddadin
<<NEW YORK (Reuters) - America gears up for a "Wee Bit O' Fun" on St. Patrick's Day Saturday, but Wall Street is in no mood to party and the stock market is likely to drop further this week.
It's hard to find much cheer, analysts say, amid Corporate America's almost daily confessions of downbeat earnings, in particular in the technology arena where even such marquee names as Intel Corp. have become serial warners.
The best scenario hoped for is sideways action in the broad market, but some experts expect the technology-laden Nasdaq market to fall further. That market's once-mighty composite index <.IXIC> peaked at over 5,000 points a year ago amid dizzying equity valuations, but now teeters above 2,000 -- down 59.3 percent from its all time high.
And it could breach the 2,000 level soon, pundits say.
"Unfortunately, the momentum is clearly in that direction ...We are running out of blood in the blood bank to revive this market," said Ned Riley, chief market strategist at State Street Global Advisors in Boston, which manages $740 billion.
"If one is looking for corporate news to bolster confidence or for the fundamental picture to improve in the next three to four weeks, they will be sorely dismayed," he said, "simply because this is the start of the trial period for technology stock prices versus the disclosure of company fundamentals."
Among top-tier companies reporting results this week is Oracle Corp. , on Thursday. The company, the world's No. 2 software provider, early this month warned investors the slowing economy will cause its fiscal third-quarter profits to miss previous estimates, and it was joined by Intel, the No. 1 computer chip maker, which late last week issued its second warning in six weeks.
Others are likely to follow with downbeat forecasts, or worse yet, complain that "low visibility" is fogging up the earnings runway for future quarters.
This means that Wall Street's analysts' estimates for corporate earnings, which are still too high despite the damage in tech prices, need to be lowered, said Howard Kornblue, money manager with ING Pilgrim Inc., which manages $12 billion.
"As those numbers come down, stock prices will be coming down to reflect that," Kornblue said.
The catalyst for a rally would be for a marquee tech company to "say things have stabilized and demand is improving," said Tony Dwyer, chief market strategist at Kirlin Securities, something that has not happened yet.
"It is very difficult to argue for a big move in either direction because there is no positive catalyst other than the oversold condition," Dwyer said. "So it will drift in its current direction, which means Nasdaq with a weakish tone and the broad market with a more positive tone."
FED WATCHING
The Street will be looking for the U.S. Federal Reserve to cut interest rates again at its next scheduled meeting March 20-21. But while a rate cut may help stop the market's erosion, it won't be the instant cure for its malaise.
Lower borrowing costs stimulate the economy and help the corporate bottom-line, but the full impact is not felt for at least six months, "which means you're going to have uncertainty about corporate profits at least until July", Dwyer said.
Ahead of any Fed action, the Street faces a host of economic data, most notably the February Producer Price Index (PPI) measure of wholesale level inflation, which along with the Consumer Price Index (CPI) measure of retail inflation are widely watched for clues on Fed moves on interest rates.
The PPI, expected to remain unchanged after a big spike of 1.1 percent in January, will be issued before the markets open on Friday, and the CPI, seen rising a small 0.1 percent versus a gain of 0.6 percent in January, is due to be issued early on March 21, before the Fed decides on rates.
A big spike in inflation numbers could cause concern in the market that the Fed will not be aggressive in lowering rates. The consensus up to now remains for a cut in the order of a half percentage point, many analysts said.
But such a cut is in fact already priced in stocks, argues Bill Leszinske, president and head of equities at Harris Investment Management in Chicago, which manages $16 billion. He sees the Fed cutting the borrowing cost by that amount, at its meeting, but not before, following two cuts in January that brought down the key Fed funds rate to 5.50 percent.
A few, however, argue that more blood-letting may prompt Fed Chairman Alan Greenspan to deliver another rare inter-meeting cut as in early January, and if that were to happen, the markets would be boosted since such a move would signal the bank's intention to stop a stocks meltdown.
"If we continue to have this kind of blood bath, it gets to a point where the (Fed) can't control the economy," said Riley, who now sees a one-in-four chance of such a Fed move. "The biggest factor in creating the extra growth in the economy has been the wealth generated by the stock market."
NO LUCKY LEPRECHAUNS, POT O' GOLD
The Nasdaq peaked on March 10, 2000 at 5,132.52 on an intra-session basis before closing that day at 5,048.62. Last Friday, a year later, it closed at 2,052.78, down 5.35 percent on the day and 59.3 percent from its record high. The Friday decline put Nasdaq a hair away from topping the great bear market of 1973-74, when the index fell 59.9 percent.
Many in fact see this happening, as they see the Nasdaq falling near-term below the psychological 2,000-point mark. Those include Pilgrim's Kornblue, who said he expects it to plunge to as low as 1,500 or 1,600 this year.
Expectations of economic recovery in the second half of 2001 are premature, said Prudential Securities analyst Robert Stovall. He said Nasdaq may fall to the "teens" this year.
"The idea that the first two quarters will be down and then we revive on the 4th of July and run up the bull flag is not right," Stovall said. "You may even have to wait until the first quarter of next year for this to turn up."
The significant tech markdown led averages to a substantially oversold status, says Ralph Acampora, chief technical analyst with Prudential. Still, he does not see the necessary "technical environment" for a Nasdaq recovery.
In fact, Acampora told clients in a note Friday that there is risk Nasdaq could fall below 2,000 after the 2,251.71 level, the Jan. 3 intra-day low, was violated recently.
"We believe that more investors will gravitate toward more conservative names," Acampora noted.>> |
